HELOC Is One Way You Can Take Out A Loan

By Adriana Noton

HELOC is one method to resort to if you own your home and you need money for a large expense like your child's education tuition bill. This is a way to borrow money when you otherwise would not be able to use your credit card. But it is a variable interest rate loan that would be relative to the mortgage rates you would see in the prime market.

It is a loan based on the amount of equity you have in your home. Equity is the difference between what your house will sell for on the open real estate market and the dollar amount that you owe the lender who holds the note on your property. You will have to report your income in the application process and your credit score will factor in on the rate of interest you will be charged.

This is the amount you will apply for with a home equity loan. The collateral of course is your property. Keep in mind of the mortgage rates - if you fail to make the payments then the land will be foreclosed on. The first lender will get paid first and then the people who hold the note on the home equity loan.

Of course no one goes into such a loan expecting that to happen. But the long and the short of it is that people who are facing foreclosure because they defaulted on their home equity loan never planned to be in that position. The home equity loan works like a line of credit. You can borrow the agreed amount based on the equity in your home. You take this out as you need it and then you pay an interest rate on the amount you have taken out.

The interest rate you pay will be based on the prime market value at the time. This rate may be different than the current GIC rates, but it will be a variable interest rate. So you are taking a risk that the interest rates will stay low but they might shoot up also. One advantage this type of loan has over the basic credit card is that you can write off the interest on your income tax.

There was a time you could write off interest paid on credit cards. But this is no longer the case so this is one advantage with this type of loan.

Like any other loan you have to plan ahead. You want to make sure you have a secure job so that you can keep making the payments. You want to have six months of money in the bank to pay bills with in case you lose your job. You want to have a strategy in place as to how you will pay back the loan.

You have to always remember this loan is based on your home equity. And it means you are putting your home on the line. Make sure you are sure you can pay the loan back so you will not lose your home. - 31382

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